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How do angels verify traction?

As an angel, how can you verify customer traction with an app, especially if it's in beta mode? How can you verify user growth, payments collected, funds raised to date, etc.? I don't know how much angels can dig through specifics of a company without making the founder uncomfortable. At the same time, it seems pretty easy for founders to exaggerate their traction or just completely make up numbers.

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Jason Calacanis mentioned that he uses a side letter contract in all his investments to ensure he can access details when needed.http://thisweekinstartups.com/news-roundtable-wood-bowles/

Personally, I don't feel uncomfortable at all with asking for details before writing a check. If an entrepreneur wants your money you, as an investor, are entitled to information to confirm the valuation of the investment.

Verification's not that hard. (i) Ask how many beta users they have. (ii) Ask if they collect demographic and other data on the users. (iii) Etc. (iv) Ask for some underlying analysis based on (i), (ii) and (iii). Made up numbers will be obvious in no time.

I wouldn't invest in a startup that doesn't embrace transparency. There is a clear link between entrepreneurs that do and better performing startups.

The very premise of your question verifies why...if they don't offer it unsolicited (proper Investor Relations would take care of that), much less quickly respond to requests, then they don't deserve investors' dollars to begin with.

Greg, every entrepreneur should have the set of KPI's that guide their business available in a real time dashboard. There's no excuse not to have this at your fingertips. They can create an account for their investors to access to that info, to the extent it's not sharing private user information or presents a security problem. Investors like to know these metrics and can offer many suggestions that can benefit the company, a true win-win. Remember, if you can't hand your business plan to your biggest competitor and still do well, you don't have a real business.

You're going to be uncomfortable. Get used to it. An angel who hesitates
to make an entrepreneur uncomfortable doesn't last into her/his second
investment. Angels ask uncomfortable questions. That's what they do.
Tigers eat meat. That's what they do. Surgeons cut your body open
without embarrassment. That's what they do. The investor is betting his
own money that you'll succeed. No investor is going to take your word
for it that everything will be OK; we're playing for keeps with his money.
What each of us start up entrepreneurs need to do - our jobs in the
transaction - is to rehearse: imagine all the hard, embarrassing
questions we can think of - as well as the answers - and go over them in
advance. Then think of more, worse questions, and go over the answers to
them. Then ask your coach or adviser to think of even more hard,
embarrassing questions and go over those answers too. Anticipate who the
angel will want to call up or email and ask about you - and what prying
questions he will ask your references + your bank + the credit bureau +
the police - and how fast he will Google you and check your Facebook and
LinkedIn pages - and all the rest.
That's why you want to have a coach or adviser, IMHO.
Jim Newcomer, Ph.D.
Principle Business Advisor
*/4/ma*
//for'ma/ n. formula for success/
[removed to protect privacy]
Cell Phone/Txt [removed to protect privacy]
__

Greg: we "angels" do not have perfect knowledge, but we usually have sufficient tools (and experience) to sort through blather to the truth. We did not gather substantial assets without a measure of cleverness and street smarts.
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